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Spatial inequality, geography and economic activity

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  • Sandra Achten
  • Christian Lessmann

Abstract

We study the effect of spatial inequality on economic activity. Given that the relationship is highly simultaneous in nature, we use exogenous variation in geographic features to construct an instrument for spatial inequality, which is independent from any man-made factors. Inequality measures and instruments are calculated based on grid-level data for existing countries as well as for artificial countries. In the construction of the instrumental variable, we use both a parametric regression analysis as well as a random forest classification algorithm. Our IV regressions show a significant negative relationship between spatial inequality and economic activity. This result holds if we control for country-level averages of different geographic variables. Therefore, we conclude that geographic heterogeneity is an important determinant of economic activity.

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  • Sandra Achten & Christian Lessmann, 2019. "Spatial inequality, geography and economic activity," CESifo Working Paper Series 7547, CESifo.
    • Handle: RePEc:ces:ceswps:_7547
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    More about this item

    Keywords

    regional inequality; spatial inequality; economic activity; development; geography; machine learning;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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